It’s Actually Easy to Market Time This 10.5% Dividend

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DoubleLine Income Solutions (DSL) took its biannual trip to the bargain bin a few weeks ago. It was a short stay, as usual.

By mid-April, vanilla investors had worked themselves into a hysterical state. They somehow convinced themselves that the Federal Reserve was going to continue raising rates.

Let me repeat—they worried that, in an election year, the Fed was going to keep on hiking. Unlikely.

Even Bloomberg lamented that traders saw “no relief in sight for bonds.” A hopeless howl that piqued our contrarian interest. No doubt, relief was just around the corner.

Indeed it was in the form of Chairman Jay Powell and his soothing postgame pillow talk.… Read more

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Be careful how you buy your bonds. The most popular tickers have four “fatal flaws” that’ll doom you to underperformance at best, or at worst leave you hanging in the event of a market meltdown!

Let’s pick on the widely followed and owned iShares iBoxx High Yield Corporate Bond ETF (HYG) as an example. It has attracted nearly $17 billion in assets because:

  1. It’s convenient and as easy to buy as a stock.
  2. It’s diversified (for better or worse, as we’ll see shortly) with 1,188 individual holdings.
  3. It pays well, at 6% today.

The accessibility of funds like HYG appears cute and comfortable enough.… Read more

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“C’mon daddy.”

Pause. And a sigh.

“I’ll pay you back?”

Ah, there it was. The fiscal responsibility we’ve been working to instill in our seven-year-old clicking in. An acknowledgement that money does not grow on trees.

(Everyone knows that greenbacks only grow on the Federal Reserve’s balance sheet!)

My daughter’s intentions were sweet. She had successfully lobbied to reroute the “daddy bus” to a boutique retail store. The young boss had her eyes on a toy, and offered to buy one for her sister, too.

Well, I should clarify. Initially she offered me the opportunity to purchase both. Your income strategist offered a compromise:

“How about you pay for your own.… Read more

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If you own a bond fund, it’s probably down in recent months. Let’s talk about why and walk through three popular fixed-income ideas from worst to first.

We’ll start with the iShares 20+ Year Treasury Bond ETF (TLT). TLT is the knee-jerk investment that many “first-level” investors buy when they are looking for bond exposure. Unfortunately, there are two big problems with TLT:

  1. It only yields 2.1%.
  2. Worse yet, its 19-year duration is drubbing its total returns.

Any kid knows that 19 years is “way too long” to hold a bond when inflation is running a hot 7.5%. (Please, somebody get these TLT investors a Contrarian Income Report subscription!)… Read more

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“Junk” bonds have never paid so little. Which makes them pointless. We’re here for the yields, not the credit quality!

Fortunately we can improve our dividends and our safety by being smarter. We are going to simply sell the popular 4%+ bonds and replace them with better 8%+ yielding equivalents.

First, the dogs. Anyone who owns either of the two most popular high-yield bond ETFs is a sad income investor today. Their yields are at all-time lows. The SPDR Bloomberg Barclays High Yield Bond ETF (JNK), for example, pays only 4.3%:

JNK’s Current Yield is Junk

And it gets worse, because this trailing yield looks better than the year ahead.… Read more

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High-yield bonds have never paid less. Which is too bad, because let’s be honest—dividends are the reason we income investors wade in “junk bond” waters in the first place.

Fortunately, by being selective rather than lamestream, we can double our existing high-yield bond dividends. Nothing fancy, either. We sell the unselective ETFs and buy the ones with proven bond investors at the helm.

Before starting, let me make one huge point. It is true that almost all actively managed equity mutual funds aren’t worth the management fees investors pay. But some actively-managed bond funds most definitely are worth it.

The ETFs we would be selling are the two most popular high-yield bond ETFs.… Read more

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Historically speaking, it’s best to avoid bonds when your central bank is printing money like crazy. More cash can lead to inflation, which can lead to higher interest rates—and put a damper on any fixed-rate holdings.

But not all bonds are bad ideas. Some have their coupons tick higher with rates. Others can even provide you with the upside of a stock! Let’s review US-centric fixed income, starting with the “outhouse” and working our way up to the “penthouse” quality bonds paying as much as 8% today.

US Treasuries: For 0.5%, Why?

Ten-year Treasuries pay just 0.5% or so as I write.… Read more

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Fed chair Jay Powell is our kind of income investor. He’s allocated up to $750 billion to buy individual corporate bonds. Perhaps Jay is sick of being told what to do, because he (like us!) is clearly on a mission to help his central bank retire comfortably on dividends.

He realizes that US Treasuries don’t have the oomph he needs. As I write, the 10-year bond pays less than 0.7%. If Jay had tossed his $750 “billies” into T-Bonds, they wouldn’t even net him a “lame” $5 billion annually.

Instead, our man hired investment firm BlackRock to buy ETFs like the iShares iBoxx High Yield Corporate Bond ETF (HYG).… Read more

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Brilliant bond manager Jeffrey Gundlach—aka the “bond god”—has decreed that it’s time to sell “junk” bonds. And he’s gone as far as to say that one-third of corporate bonds should probably be rated as junk.

Gundlach is one of the few “gurus” that we pay attention to. He called the subprime mortgage crisis ahead of time in 2007, an epic rally in US Treasuries earlier this decade, and President Trump’s election in early 2016 (when few gave the Republican candidate a chance.)

And his two closed-end funds (CEFs) are excellent long-term additions to a retirement portfolio. Over the last six years his two DoubleLine funds have roared to 72% and 54% total returns (with the majority of these gains coming as cash dividends:)

DoubleLine CEF’s Deliver: Distributions Plus Gains

But no guru is perfectly clairvoyant!… Read more

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We all love 7% yields here. But how do you feel about Sprint’s 7.88% bonds that mature in September 2023?

Well, the company might make it until then. Shares trade for pocket change at just over $6. Equity investors in Sprint (S), however, have been (wait for it) sprinting to the exits lately:

The Stock Feels the Weight of Sprint’s Debt

For a position this risky, I’d want to watch it closely. I’d also want to be able to sell it at the first sign of distress.

Unfortunately, that isn’t going to be possible. If you own the Sprint 2023’s, you’ve got company–$320 million to be specific!… Read more

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